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The global rout caused by investor pessimism about the US economy dragged down Indian technology companies as well.
Nifti IT, India’s key stock index for the information technology space, ends 2022 down 24% year-on-year.The worst decline since the global financial crisis in 2008. This decline comes after five consecutive years of annual gains.
Technology companies such as Wipro, Tech Mahindra and Mphasis have lost more than 40% of their market value in 2022. Hundreds of employees have been laid off in both startups and manufacturing companies. Venture capital funding has decreased.
While India’s economy itself has been resilient in a volatile global environment, the weakness in its tech industry could continue into 2023.
Why are Indian tech stocks falling?
Recession fears, fueled by rising interest rates in developed markets, have hit the revenues, sales and growth prospects of many global technology firms. The bulk of Indian tech firms’ earnings come from global clients.
This sell-off only intensified after Goldman Sachsin September it downgraded Mumbai-based Tata Consultancy Services (TCS) and Bengaluru-based Infosys to “sell” from “buy”, citing a potential slowdown in revenue growth.
In the meantime, HCL TechnologiesIndia’s third-largest IT company by revenue, also cut its revenue growth projection for 2023.
“Some pimps like time off.” [in the US] and the decline in discretionary spending in technology, telecom and other verticals is a bit more than what we expected at the start of the quarter,” C Vijayakumar, CEO and managing director of HCL Technologies, said at its Investor Day event in New York last week .
Financial winter is here to stay
India’s new age tech startups are also in the soup.
With delayed growth plans and hundreds of layoffs in recent months, companies such as SnapdealPharmEasi, MobiKwik and Droom had to equalize postpone your listing plans.
There was a significant slowing down of venture capital financingalso according to The Wall Street Journal. In 2022, startups in the country have so far raised only $25.5 billion, according to Trackn Technologies data obtained by the business news daily. By comparison, last year’s figure was $41.3 billion.
In 2021, tech startups like Zomato, Paitm, Nikaa launched their initial public offerings. Regardless of the bleak list of a few of them, the funds collected then helped many of them make it through to 2022, VSJ reported. But 2023 could be tough, especially for newer startups.
Those in the later stages of funding are more vulnerable, the business daily said.
What to look for in 2023
An aggressive rate hike cycle in the US and a subsequent weakening labor market could cloud India’s IT outlook for 2023.
US Federal Reserve Chairman Jerome Powell said on Wednesday (December 14th) that he will not run away from increase in interest rates further in 2023, even if the economy slips into recession.
This could force tech companies to restructure or push them into bankruptcy, wage cuts, and even executive departures and layoffs. For that reason, Jefferies expects IT revenue growth in India will slow by 250 basis points to around 7% in 2023.
During the pandemic, the rise of startups fueled the expansion of India’s tech industry. Maybe now is the time for a correction.
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